Dollar falls after Fed comments, Italian auction

Italy’s bond sale comes as ‘hardly a ringing endorsement’

By

DeborahLevine

WilliamL. Watts

NEW YORK (MarketWatch) — The U.S. dollar declined Thursday after a second Federal Reserve official highlighted risks to U.S. economic growth, remaining lower against the euro after Italy managed to sell benchmark three-year bonds and other debt in a closely watched auction.

The Australian dollar was one of the best performers of the day after stronger-than-expected Australian jobs data.

The euro
EURUSD, +0.2415%
rose to $1.3199, up from $1.3102 in late North American trading Wednesday. The 17-nation shared currency also advanced on the Japanese yen
EURJPY, -0.08%
up 0.3% to ¥106.58.

The ICE dollar index
DXY, -0.25%
, which measures the U.S. unit against a basket of six major currencies, fell to 79.269 from 79.791 Wednesday.

The dollar briefly pared losses following a report showing U.S. first-time jobless claims unexpectedly rose to 380,000 last week. Other government reports said that producer prices were unchanged in March, while economists predicted an increase, and that the nation’s trade deficit narrowed more quickly than forecast in February. See story on jobless claims.

Also early Thursday, New York Fed President William Dudley made comments in which he said the economy isn’t yet strong enough to make a significant dent in the unemployment rate. Read more on Dudley.

Dudley followed on remarks late Wednesday from Janet Yellen, the Fed’s second-ranking official, who made the case for keeping interest rates low for some time. See story on Fed’s Yellen.

“The comments weighed on the buck somewhat but both Yellen and Dudley are known doves and the statements did not represent a shift in policy stance but served as a reminder that the economy remains quite fragile,” said Eric Viloria, senior currency strategist at Forex.com.

The comments and data supported Treasury bonds, pushing yields down, while U.S. stocks shrugged off early uncertainty to score gains for a second day. See story on Treasury bonds.

“This indicates that markets expect the Fed to maintain its accommodation and keep additional easing options on the table,” Viloria said.

Italy’s auction

The euro held gains earlier after Italy sold 2.89 billion euros ($3.8 billion) of benchmark three-year bonds at a yield of 3.89%, up from 2.76% in a sale of the same securities last month. Demand exceeded supply by 1.43 times, down from a “bid-to-cover” of 1.56 in March. Italy also sold a variety of so-called off-the-run, or non-benchmark, bonds as well.

“That Italy got their BTP auction away could be seen as a positive, not least as there had been early morning rumors of a scaling back in the size of the auction,” said Jeremy Stretch, currency strategist at CIBC in London. “But the advance in the yield compared to a month ago, 3.89% compared to 2.76%, is hardly a ringing endorsement of Italy.”

The auction had been anticipated for days as renewed regional sovereign-debt worries grew.

Italian and Spanish 10-year bond yields were slightly lower Thursday, easing for a second day after a sharp, Spanish-led run-up underlined fears that the countries could become engulfed by the debt crisis. Read recent story on Spain’s yields.

Spain is the euro zone’s fourth-largest economy, while Italy is the third-largest euro-zone economy as well as the No. 3 global market for government bonds.

Australia’s jobs report

The Australian dollar
AUDUSD, +0.3769%
lately traded at $1.0442, up from $1.0306 just before the release of data that showed the country’s unemployment rate unchanged from February at 5.2%. The aussie is up 1.1% from Wednesday.

That the Australian employment figures came in much stronger than expected “ensured the Australian dollar outperformed by a wide margin,” said Sue Trinh, strategist at RBC Capital Markets.

Also Thursday, the British pound
GBPUSD, +0.4266%
traded at $1.5973, up from $1.5906.

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